Mary Sullivan, capital expenditure manager for PDA Manufacturing, knows that her company is facing a series of monthly expenses associated with installation and calibration of new production equipment.
The company has $1 million in a bank account right now that it can draw on to meet these expenses. Funds in this account earn 6 percent interest annually, with monthly compounding. Ms. Sullivan is preparing a budget that will require the firm to make equal monthly deposits into their bank account, starting next month, to ensure that they can pay the repair costs they anticipate over the next 24 months (shown as follows). How much should the monthly bank deposit be?
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Months
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Repair Cost per Month
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1-4
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$ 100,000
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5-12
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200,000
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13-24
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500,000
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